Question to the Department for Business, Energy and Industrial Strategy:

To ask Her Majesty's Government who is responsible for evaluating the role and effectiveness of (1) the Corporate Governance Code, (2) company directors, (3) shareholders, (4) fund managers, and (5) remuneration advisers to Boards of Directors.

These matters are addressed through a mixture of legislation, regulation, codes, investor scrutiny and market activity.

The Financial Reporting Council (FRC) is responsible for the UK Corporate Governance Code, the effectiveness of which is regularly reviewed. A revised Code will be published soon, following a public consultation which included proposals to address important issues such as workforce engagement and improving board effectiveness.

Company directors must comply with the directors’ duties set out in the Companies Act 2006. The Insolvency Service has powers to prosecute directors for breaches of these duties. The Government keeps directors’ duties under review and has recently tabled draft secondary legislation (The Companies (Miscellaneous Reporting) Regulations 2018) that will, if approved by Parliament, place a new requirement on companies to report annually how their directors are meeting their duty under Section 172 of the Companies Act to have regard to employee and certain other interests.

In addition, shareholders vote annually on the appointment or re-appointment of directors and therefore have powers to vote directors off the board where they are dissatisfied with their performance. Under the current UK Corporate Governance Code, a board should also undertake a formal and rigorous annual evaluation of its own performance including the performance of individual directors. In the case of FTSE 350 companies, there should be an externally facilitated evaluation at least every three years with the external facilitator identified for shareholders in the annual report, and with the chairman acting on the findings.

Shareholders, where they are regulated, and fund managers must comply with the terms of the Financial Services and Markets Act 2000, which is enforced by the Financial Conduct Authority. Institutional investors also have fiduciary duties to their clients and must comply with the terms of their investment mandate. Additionally, the UK Stewardship Code sets out best practice for institutional investors in terms of their stewardship responsibilities. The FRC will be consulting on a revised Code later this year.

It is the responsibility of a company’s board of directors to assess the effectiveness of remuneration advisers it appoints and a company has a statutory obligation (under Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended in 2013) to disclose certain details in respect of remuneration advisers’ services, including whether and how the remuneration committee has satisfied itself that the advice received was objective and independent. Remuneration policies and reports are additionally subject to shareholder votes.